NASSAU, Bahamas, June 18

For the first time since he took office a generation ago, Prime Minister Lynden O. Pindling faces an election Friday that threatens his tenure and may be a turning point in this island nation's growing reputation as a safe haven for drug traffickers and a breeding ground for high-level corruption.

Pindling, a lawyer, has lost none of the political savvy that enabled him to oust a minority white government 20 years ago and lead the Bahamas to independence in 1973.

But the prime minister and his ruling Progressive Liberal Party have been stung for three years by official and press reports linking government officials with money from drug running, estimated to be the second largest industry here after tourism.

Pindling is being challenged by the opposition Free National Movement, which now holds less than a third of the seats in the House of Assembly but is thought to have gathered considerable momentum in recent weeks.

Traffickers, who use some of the 700 Bahamian islands as a way station for tons of cocaine and marijuana heading from South America to the United States, are alleged to have influence in the highest reaches of government. Pindling and his associates have denied the charges.

The infusion of cheap and available narcotics, especially the highly potent form of cocaine known as crack, is affecting a generation of Bahamians, many of whom have become addicted to drugs and to the easy money associated with the drug trade, according to Bahamian officials and diplomats.

Dr. David Allen, chairman of the National Drug Council, warned this week of the erosion of the nation's value system and described a drug trade protected by violent crime that has "outgunned, outmanned and outspent" the government. Reconstruction," he added, "will be very, very difficult."

In the face of the reports of his government's corruption, Pindling has insisted that it is doing all it can to staunch the flow of narcotics. He has also launched allegations of drug-linked corruption at members of the Free National Movement.

But the prime minister has done nothing to discipline senior members of his own party who were accused by a government-appointed Commission of Inquiry in 1984 of accepting payoffs from drug traffickers and laundering money for a Mafia figure. And he has declined to explain a commission finding that he spent nearly $3.5 million -- about eight times his official salary -- over a seven-year period.

The direction of politics here is of particular concern to U.S. officials who have established more bilateral drug interdiction programs with the Bahamas than with any other nation.

As the United States has become more outspoken in its consternation about developments here, relations between the two nations have been strained.

Two weeks ago, for example, Pindling lashed out at U.S. Ambassador Carol B. Hallett, who had taken a group of American election observers to meet with him.

The observers, dispatched by a Senate Foreign Relations subcommittee, said there are signs that balloting may be tainted by administrative glitches and political chicanery.

Meanwhile, the opposition Free National Movement has grown bolder and more confident, and its candidates predict victory.

The party, which received 43 percent of the popular vote in 1982, has been attracting large and enthusiastic crowds to its nightly rallies.

At the party's final rally last night, a throng of about 15,000 danced, whooped and sang the praises of Free National Movement leader Kendal G. L. Isaacs, a lawyer who would become prime minister if his party wins a majority in the 49-member assembly.

The ruling party's rally on the same night appeared smaller and somewhat less enthusiastic.

Speakers did elicit a boisterous response when they declared that the opposition is in league with the "Bay Street Boys," the white Bahamians who wield considerable influence and financial muscle here.